NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Origins of State Capacity: Property Rights, Taxation, and Politics

Timothy Besley, Torsten Persson

NBER Working Paper No. 13028
Issued in April 2007
NBER Program(s):   IFM   POL   PE

Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.

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Document Object Identifier (DOI): 10.3386/w13028

Published: Timothy Besley & Torsten Persson, 2009. "The Origins of State Capacity: Property Rights, Taxation, and Politics," American Economic Review, American Economic Association, vol. 99(4), pages 1218-44, September.

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